Introduction to micro- and macroeconomics 2023/2024
HSE international program in applied data analysis
Problem set I.1
1. A high-end ladies fashion boutique purchases winter coats from a manufacturer at a price of £300
per coat. During the winter the boutique will try to sell the coats at a price higher than £300 but may
not be able to sell all of the coats. Since they are the latest fashion, no customers would be interested in
buying the coats next season. However, at the end of the winter, the manufacturer will pay the
boutique 20% of the original price for any unsold coats (and re-use the expensive fabrics they are
made from for the next year’s designs).
a) At the beginning of the year, before the boutique has purchased any coats, what is the opportunity
cost of these coats?
b) After the boutique has purchased the coats, what is the opportunity cost associated with selling a
coat to a prospective customer? (You can assume the coat will be unsold at the end of the winter if that
customer doesn’t buy the coat).
c) Suppose towards the end of the winter the boutique still has a large inventory of unsold coats. The
boutique has set a retail price of £950 per coat. The marketing manager argues that the boutique should
cut the price to £199 to try to sell the remaining coats before they become unfashionable at the end of
the winter. However, the general manager disagrees, arguing that would mean a loss of £101 on each
coat. Which makes more economic sense – the marketing manager’s suggestion or the general
manager’s argument?
2. The table below gives Caren's total benefit from eating cookies (measured in roubles):
# of cookies
Total benefit
0
0
1
20
2
50
3
90
4
105
5
95
a) Assuming that one cookie costs 20 roubles, how many should she buy?
b) Now suppose cookies are only sold in boxes of five: one box costs 100 roubles. If Caren did buy the
box, what would be her marginal cost of eating the 1st cookie? 2nd cookie? 5th cookie?
c) If Caren is a rational maximizer of her economic surplus, should she buy the 5-cookie box?
3. Robinson and Friday are the only two people living on an island. They have a fig tree with delicious
figs they both enjoy very much. Every night a batch of 20 ripe figs drops to the ground, and all they
have to do is pick those figs from the ground and decide how to share them. Currently they share the
figs equally: 10/10.
a) Two observers from a distant land arrive to the island and make the following statements:
Mr. A: “This allocation of figs is not efficient. Robinson does much more work on the island than
Friday, so he deserves more figs.”
Mrs. B: “This allocation of figs is not efficient. Friday comes from a disadvantaged background - he
has not been getting enough nourishment all his life. So he should be getting more figs.”
Comment of these statements. Do you agree with them? Are they normative or positive? Is the current
allocation of figs Pareto efficient?
b) Identify all the Pareto efficient allocation(s) of figs.
c) Suppose currently they are picking up figs in the evening. The wet season starts, and now every
evening two figs turn out to be rotten, so Robinson and Friday each get 9 good figs and 1 bad one.
They don’t eat the bad figs.
Friday notices that the figs spoil during the day while on wet ground – if they picked them in the
morning, all figs would be good. He suggests to Robinson to start picking up figs in the morning and
Introduction to micro- and macroeconomics 2023/2024
HSE international program in applied data analysis
sharing them in the following way: Robinson gets 9 good figs, while Friday gets 11 good figs. Is
Fridays’ suggestion a Pareto-improvement? Should Robinson accept this proposal?
4. Home country has 100 workers. Each of them is able to produce 6 units of machinery or 2 units of
textiles. Foreign country has 400 workers. Each of them is able to produce 0,5 units of machinery or 1
unit of textiles.
a) Putting machinery on the horizontal axis and textiles on the vertical, draw these countries'
production possibility frontiers.
b) Which country has an absolute advantage in machinery? In textiles?
c) Which country has a comparative advantage in machinery? In textiles? How can you figure this out
from the shape of their PPFs?
d) If both countries would fully specialize according to their comparative advantages and trade with
each other, which one will be producing textiles? What is the minimal quantity of machinery to be
given for a unit of textiles on which the countries can agree? The maximal quantity?
e) Suppose Home and Foreign country merge into a single economy. Illustrate this economy's PPF.
f) Suppose this joint economy falls under a dictatorial regime, and the dictator orders that every unit of
machinery and textiles should be produced by a former Home citizen and a former Foreign citizen
together (50% of each unit made by Home, the other 50% - by Foreign). Illustrate all possible
combinations of machinery and textiles they will be able to produce this way. Are these combinations
productively efficient?